Summer in Europe + the Ultra High Net Worth
I am surfing in Portugal this week in a small town called Peniche (Praia do Baleal, to be exact), and it is low key, charming, and wonderful. Omg the fish. Perhaps not surprisingly for an investor focused on the future of commerce, the experience has gotten me thinking about the luxuries of life and the luxury market, and what lies ahead.
It does not escape me that I am privileged to get to come here with other VC’s to make memories and work remotely, a treat that I would not have imagined growing up in WoodDale, Illinois. Capitalism and the free market, along with the genetic lottery and some hard work, have made it possible for people like me to create wealth, more than I could have imagined growing up. Being in New York at the doorstep of opportunity helps, too.
That said, I am barely in the top 10% of all earners in New York, let alone the top 1%. Our globally identified one percenters generally fall into two categories: The High Net-Worth Individual (HNWI) and Ultra-High-Net-Worth Individual (UHNWI), whose net worths are >$1M and >$30M, respectively.
While I may get to take advantage of a European trip in the summer, these UHNWIs are the folks like Bernard Arnault whose superyachts are banned from Naples and whose Titanic submarines stopped the news cycle last week while 100-people refugee boats sunk without coverage of similar kind. Why spend time talking about this group, who are often sirens for the world’s inequity and benefactors of mass exploitation, you may ask me? Because no matter what you think of UHNWI, whether you are one or not, people pay attention to what they do in an outsized way, and their purchasing power has an outsized affect on our markets. And, moreover, because it’s a group that is growing incredibly fast.
This chart from McKinsey shows the rate of growth in these segments, growing 5-9% per year. In North America, we will have over 300,000 UHNWIs by 2026. That is astounding to me. Given the average Louis Vuitton trunk is, call it, $40,000 (conservatively, not counting something more collectible), the market for these trunks in N. America alone will expand by three billion dollars.
The ultra-high-net-worth individual has no problem spending on big ticket items with high AOVs (the top 2% of the population buys 40% of the luxury market), and I believe we will see a growing segment of novel luxury goods and services, in particular things around wellness and the Quiet Luxury of outliving everyone else.
It’s also important to note that, within this demographic, GenZ and Millennials are growing 3X faster than any other segment of the UHNW. By 2030, they will make up 30% of the overall luxury market, which will usher in an openness to new brands and services beyond what we previously offered, with many of these residing online in a way they previously were not. Things much more conscious, less conspicuous; much more green, much less polluting; and perhaps even more craft, authentic, rooted in the essentialism of the everyday.
It’s something to keep eyes on, whether it’s luxury cars, high-end birthing centers, VIP stores with minimum spends (enter Chanel and Balenciaga), or any of the major spend categories in luxury:
Luxury Personal Goods, both first- and second-hand
Luxury Hospitality
Luxury Cars
Fine Wine + Spirits
Fine Dining
Fine Furniture
NFTs gatekeeping premium experiences
For now, I will cherish my time at the Surf Castle, a retreat run by people far richer in spirit than any billionaire I have met or can think of.
